On September 25, 2026, the U.S. Court of Appeals for the Sixth Circuit held in KalshiEX LLC v. Schuler that Kalshi's sports event contracts are not "swaps"[1] under the Commodity Exchange Act ("CEA") and that Ohio and Tennessee’s laws prohibiting sports gambling still apply.[2] The Sixth Circuit is now the second federal appellate court in a month to rule against Kalshi, and its decision widens a circuit split that looks increasingly likely to reach the U.S. Supreme Court. This alert summarizes the ruling and the growing regulatory scrutiny of prediction markets.
The Sixth Circuit's Decision
Kalshi has been registered with the Commodity Futures Trading Commission ("CFTC") as a designated contract market ("DCM") since 2020, allowing contract access to traders and retail customers under the regulatory oversight of the CFTC.[3] In January 2025, it began listing contracts on sports outcomes, with live sports trading.[4] Kalshi marketed itself as "the first nationwide legal sports betting platform" and claimed that "sports betting [is] legal in all 50 states on Kalshi." Ohio and Tennessee disagreed. Kalshi sued in both states, and the respective district courts reached opposite results. In the Sixth Circuit Court, a unanimous panel resolved the conflict in favor of the states on two independent grounds:
- Kalshi failed to show that these contracts are swaps. They are not "inherently associated" with a potential “financial, economic, or commercial consequence” for a contract on it to qualify as a swap.
- Even if they were swaps, state law is not preempted. The CEA's "exclusive jurisdiction" clause displaces direct state regulation of how DCMs are licensed and operated but does not displace generally applicable laws (gambling statutes) that only incidentally burden DCMs.
The court affirmed the denial of Kalshi's preliminary injunction in Ohio, vacated the injunction Kalshi obtained in Tennessee, and remanded both cases.
A Widening Split Likely Warranting the Supreme Court’s Intervention
The Sixth Circuit now joins the Ninth Circuit, which on August 28, 2026, affirmed the dissolution of the preliminary injunction against Nevada’s cease-and-desist letter on similar grounds.[5] Both courts are at odds with the Third Circuit, which held in April 2026 that sports event contracts traded on a DCM do fit within the definition of “swaps” subject to the CFTC's jurisdiction, and that New Jersey’s enforcement of its gambling laws against these contracts is preempted by the CFTC’s exclusive jurisdiction under the CEA.[6]
New Jersey filed a petition for certiorari on September 2, 2026, requesting the Supreme Court to answer whether the Dodd-Frank Act and Consumer Protection Act preempted states from regulating sports betters placed within their borders when those bets are offered on CFTC-registered markets.[7] Until the Supreme Court acts, however, the rules depend on geography. A platform may be protected by federal preemption in New Jersey but is likely exposed to state gambling enforcement in Ohio, Tennessee, and Nevada.
Regulatory Scrutiny Is Intensifying on Every Front
The litigation is only one part of a broader and increasingly aggressive regulatory environment.
- The states. In a July 2026 letter to the CFTC, 44 states argued that the agency lacks authority over sports-related prediction markets.[8]
- The federal regulators. CFTC's position has been consistent, maintaining it has proper and exclusive jurisdiction over DCMs and that "a derivative contract structured as a swap is a swap regardless of the underlying subject matter.”[9] The CFTC filed lawsuits against three states to defend its jurisdiction. [10] And the SEC and CFTC jointly requested public comment on classifying these novel event contracts.[11]
- Congress and law enforcement. On September 29, 2026, the Chairman of the House Oversight Committee expanded an investigation into insider trading on prediction markets, following reported cases involving trading on nonpublic government information. [12]
In sum, this new Sixth Circuit decision is just the latest in a series of developments shaping the legal and regulatory landscape for prediction markets. It is reminiscent of the early decisions around whether cryptocurrency was a security and the resultant wrangling that ensued there.[13] As with cryptocurrency, the laws and regulations relating to prediction markets will evolve over time and that evolution will have impact not just on prediction markets themselves, but every product, platform and advisor that intersects with them.
[1] Swaps are “financial contracts in which two counterparties agree to exchange or ‘swap’ payments with each other as a result of such things as changes in a stock price, interest rate or commodity price.” SEC, The Regulatory Regime for Security-Based Swaps (2012); KalshiEX LLC v. Schuler, Nos. 26-3196/5235 (6th Cir. Sept. 25, 2026)
[2] See KalshiEX LLC v. Schuler, Nos. 26-3196/5235 (6th Cir. Sept. 25, 2026)
[3] See CFTC Press Release 8302-20 (Nov. 4, 2020)
[4] See Kalshi’s sport trading X announcement (Jan. 23, 2025)
[5] See KalshiEX, LLC v. Assad, No. 25-7516 (9th Cir. Aug. 28, 2026)
[6] See KalshiEX, LLC v. Flaherty, No. 25-1922 (3d Cir. Apr. 6, 2026)
[7] See Petition for Writ of Certiorari, Flaherty v. KalshiEX, LLC, No. 26-299 (Sept. 2, 2026)
[8] See Comment on CFTC-2026-1189, CFTC-2026-1189-0001, Ohio, Kentucky, Maryland, Nevada, New Jersey, New York, Tennessee, Utah, and 36 other States (Jul. 28, 2026)
[9] See CNBC, U.S. appeals court rules against prediction markets, sets up likely fight at Supreme Court (Aug. 28, 2026)
[10] See CFTC Press Release No. 9206-26 (Apr. 2, 2026)
[11] See SEC Press Release No. 2026-57 (Jun. 18, 2026)
[12] See Comer Continues Investigation into Insider Trading on Online Prediction Market Platforms (Sept. 29, 2026)
[13] See for example, SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346 (S.D.N.Y. 2024); the SEC Framework for “Investment Contract” Analysis of Digital Assets, and the superseding SEC Release Nos. 33-11412; 34-105020 (Mar.17, 2026)